18 November 1998 External T.I. 9825055 - R/A, LOSS OF OFFICE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Would an amount received from the employer qualify as a retiring allowance where employment, pension entitlements and union seniority ends one day and on the next day employment recommences with the same employer, rejoins the pension plan and becomes a new member of a different union with no seniority rights?

Position: No.

Reasons:

It would be very difficult to conclude that there was a loss of employment where, as in this case, there is continuous employment and only changes in seniority status for union and vacation entitlements.

XXXXXXXXXX 982505
M. P. Sarazin
Attention: XXXXXXXXXX

November 18, 1998

Dear Sirs:

Re: Termination Package and Retiring Allowance

This is in reply to your letter dated September 16, 1998, which was sent to the Registered Plans Division and subsequently forwarded to us, wherein you requested a ruling as to whether a payment of $55,000 qualifies as a retiring allowance for purposes of the Income Tax Act (the “Act”).

Your company sold a part of its operations to another company and, as a result of negotiations with the union representing the affected employees, various options were offered to the affected employees. One particular employee accepted one of the options whereby his services were terminated as of November 9, 1997 and as a result he qualified for a payment of $55,000 but relinquished all seniority rights in the union, lost all long-service vacation privileges and ceased to contribute to the company’s pension plan. However, under the option, the employee applied for and was accepted into a company training course to qualify for a position in another department which is covered by a different union. The employee began the course on November 10, 1997 and has been on the payroll since then. The employee has successfully completed the course and, as a result, he now qualifies for a new position and his employment is effective as November 10, 1997 for vacation and pension plan purposes.

Comments

In your letter you have outlined what appears to be an actual fact situation related to a past transaction. The review of such transactions falls within the responsibility of Tax Services offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. However, we can provide you with the following general comments which we hope will be of assistance.

The Department’s general views on retiring allowances are found in the enclosed Interpretation Bulletin IT-337R3. We note that paragraph 3 of IT-337R3 states that “retirement or loss of office or employment does not include a transfer from one office or position to another with the same employer (or an affiliate), in a different capacity (including one with diminished responsibilities)”. In our view, a termination of employment with one division of a company represented by one particular union followed by the commencement of employment with the same company in another division represented by a different union would not constitute a loss of office or employment for purposes of the Act. This would be the case whether or not the employee maintains his or her seniority. Consequently, any payment received from the employer as a result of cessation of employment with one division of a company will not qualify as a retiring allowance where the person is employed immediately thereafter by another company’s division.

We trust that our comments will be of assistance.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch